BRICS and the USD

The annual summit of BRICS is always accompanied by a lot of discussions about the changes in the current system of global economy which is currently dominated by the US dollar. However, the recent meeting of BRICS leaders announced two concrete steps to signal the end of the USD hegemony in the international trade. The foremost is the establishment of $100 billion fund to compete with the International Monetary Fund and the other step is to create a development bank with initial capital of $50 billion. The BRICS countries are gaining more economic power with the passage of time but they need more political callout to match it. The financial system established and supported by western powers and dominated by the USD.

Under the current financial system the BRICS have to trade in the unstable USD. As a result, their economies keep on swinging with the fluctuations in the USD. From the perspective of forex traders, it is vital to know the extent to which the BRICS will affect the USD in the foreseeable future in order to make safer deals. It has been argued that the current financial system is outdated and ill-suited for the future economic powers. As you know, the forex trade is the way currency exchange rates are established and set. The BRICS are trying to trade in currencies other than USD. This practice can alter the current balance in international trade that, in turn, will affect the forex trade.

In addition to the development bank and a pool of $100 billion reserves, the BRICS are making a series of currency related agreements to gain control over the financial imbalances involving developing countries. Currently this function is being performed by the IMF. Russia, one of the two economic giants in the BRICS, has recently announced that it is looking to sell its petroleum and gas products for rubles because of the damage done by dollar monopoly in the global energy trade. On the other hand, China is looking to establish its currency ‘Yuan’ as the currency for international trade and has achieved success to some extent. Therefore, the USD is expected to be affected by these moves in future. The close association of BRICS may accelerate the process as their economic power increases in near future.

The clear indications from Russia to shift away from the USD provide a clear insight into prospective impacts of BRICS on the USD. This process has been enhanced by the US and the European sanctions against different countries because they readily accept to trade in the regional currencies. Another crucial element in this regard is the strong economic alliance between BRICS countries. As far as the impacts of BRICS on USD is concerned, it has the financial power and influence to establish a currency that can challenge the USD as an alternative for international trade. However, ground realities show a complicated and problematic scenario to make it happen as the BRICS are not ready to commit the necessary resources for this purpose.